Author Topic: MCR.V - Macro Enterprises  (Read 109989 times)

bz1516

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MCR.V - Macro Enterprises
« on: September 30, 2013, 08:56:59 PM »
Macro Enterprises, MCR.v  is a pipeline infrastructure company.  It does pipeline maintenance as well as construction.  Itís located in Ft St John, BC. I like both the company and the sector.  The company has shown excellent growth and the stock has responded accordingly. 

In addition to the strides the company has made in expanding its business already, the advent of increased natural gas production with an LNG port on the coast of BC raises the probability that the strong growth in revenues and profitability for this company will continue into the foreseeable future.  Obviously there needs to be a pipeline built between the coast and the ng fields in Alberta and eastern BC. 

Canada is getting closer to putting the whole package, the producing wells, the pipeline and the LNG port together.  There are several proposals for LNG terminals on the coast in northern BC. As an example of the timing in which capital commitments are being made, another portfolio position I have, TDG, announced not too long ago they ordered a new rig to respond to the expected demand for ng drilling due to the expected demand for LNG on the BCC coast. 

Despite already significant increases in selling price, MCR still sells at 3.5x EPS, 4.3x fully diluted. In comparison Bird Construction is selling at a PE ratio of ~11x.

There are currently two analysts following MCR.  Both Paradigm and PI Financial just started coverage in the last several months.  There are still no funds or institutions yet.

Earnings have grown rapidly in the last several years. They earned $.78 FD this past year, and I expect they will earn $1.60 this year, ~$1.30 FD. The stock is currently trading around $5.60 per share. 

While earnings have not been that lumpy, they get a lot of smaller contracts relatively quickly, its not possible to project accurately too far out because of the short cycle from when they get the job to when its completed.

The current conditions that have enabled the company's growth so far are still in place according to the CFO. Guidance for Q3 2013 is for an increase over Q3 2012, and guidance by this company has been conservative to the extreme.  The positive tone of business has allowed the company to be more selective in taking on business. This has contributed to the recent margin improvement we have seen since 2012.  In addition they acquired Enbridge as an account with an acquisition they made for less than BV in Q4 of last year.  I believe Enbridge may now be their largest account, though the company refuses to confirm or deny.

MCR specializes in doing smaller contracts. The large number of small contracts they normally get are more like maintenance capex or opex than part of larger capital spending decisions, so this insulates them at least partially from the cycle. Their customers are mostly the larger cap oil producers and pipeline companies like Encana, Talisman and Trans Canada, and more recently Enbridge. The list of their largest accounts is available in their presentation from Q1.

Because of increased margins from taking on better quality work and the general tone of business, the results of the company have increased dramatically in the last few quarters. This has led to sharp increases in net income and caused the stock to increase in price. However the earnings have grown so rapidly the share value metrics remain excellent. The company has enough equipment as a result of their acquisition to substantially increase revenues from current levels without purchasing additional equipment. 

The company has now largely recharged their balance sheet from when they had leaner years.  They have no current plans to pay a dividend.  They are threatening to become a cash cow based on the current trendline.  That raises a question in my mind what they will do with the cash they would be expected to start piling up in H2?

 Their relevant website is not the one listed by the TSX.  It is http://www.macroenterprises.ca. They have another website which is more customer oriented, but devoid of investor related information.
« Last Edit: September 30, 2013, 09:41:34 PM by Parsad »


bz1516

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Re: MCR.V - Macro Enterprises
« Reply #1 on: November 24, 2013, 07:07:33 AM »
Here is an article in the Financial Post which discusses current growth in the pipeline construction market and how it will grow through 2020.

 http://business.financialpost.com/2013/11/21/canada-in-midst-of-great-energy-infrastructure-super-cycle/?__lsa=3aa7-b715

samiamdj

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Re: MCR.V - Macro Enterprises
« Reply #2 on: November 24, 2013, 08:54:01 AM »
First post vanished.  So when at first you don't succeed try.,try again. This is my leap of faith.

IMHO Macro could represent the consummate long term investment. Whether they choose to take advantage of what will be a long in duration pipeline build out in BC, by growing organically or being acquisitive, or both, their ability to throw off lots of cash will keep increasing.

It seems perfectly reasonable to assume that there will be as much business as they can handle. Especially with the public and govt scrutiny of pipelines. Macro's monitoring business should grow materially. Services as well.I would think, although it's pretty much a guesstimate on my part, that this is a field that they can ramp up more easily. Needing trained staff and monitoring equipment for the most part. An acquisition would be great but I'm no so sure that they can't handle what comes their way inhouse .

At some point Macro is going to have to decide what to do with their ever increasing free cash flow. Hoarding it makes no sense. So they either put it to work by acquiring other sector businesses, please don't go beyond your area of expertise as you've got a ton of growth a head of you by just being you, or implementing a dividend. They could pay a sizable dividend and still have a lot of free cash left over for acquisitions, debt mgmt and fiscal prudence.

To me Macro is a company with great potential, thus leading to a successful and rewarding investment that could be held perhaps in perpetuity.

One mans opinion

Best,

Sam

samiamdj

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Re: MCR.V - Macro Enterprises
« Reply #3 on: November 30, 2013, 07:59:07 AM »
Another great quarter, but their earnings were obviously impacted by the mix of their projects. Top line was great but bottom line was a little light based on Q3 revenues. I had expected their bottom line to be better YOY. Again I'm not unhappy with their earnings but based on the revenue jump earnings didn't follow in lock step.

The company somewhat contradicts itself in this part of their outlook for Q4. Although the outlook is probably based on the fact that they're 2/3rds of the way into Q4.  Or perhaps more muted expectations in the under promise/over deliver philosophy. On one hand they see that Q4 to be somewhat above Q4 of last year, while in the same paragraph Macro sees prospects of significant pipeline infrastructure projects in BC. One would expect with those current prospects that Q4 would be materially better?

<The Company is expecting revenues in the fourth quarter to be somewhat above that recorded in the fourth quarter last year, after taking into account the expected additional revenues resulting from the November 2012 acquisition. The Company continues to actively bid new jobs and look for new opportunities. The Company is encouraged by the prospect of significant pipeline infrastructure projects in B.C. and Alberta in the short and medium term>

Bottom line is the big prize is BC's LNG initiative. The company highlights it and any investor in this sector knows that this has huge potential. A few years from now Macro's current earnings will most likely pale in comparison to 2015/2106.

Thoughts?

Best,

Sam

samiamdj

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Re: MCR.V - Macro Enterprises
« Reply #4 on: November 30, 2013, 08:03:42 AM »
Also why the jump in shares? Options?

Macro went from 25,120 to 26,663.  A decent size Q over Q jump without being acquisition related. Question for Frank?

Sam

samiamdj

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Re: MCR.V - Macro Enterprises
« Reply #5 on: December 01, 2013, 04:18:52 PM »
Thanks 50cent.

Must of been expiring options. Talk about having skin in the game.

At some point Macro is going to have to make a decision as to what to do with all of the cash they're throwing off. Especially making all cash acquisitions.

Will Macro just continue to be on the hunt for additional scale bolt on acquisitions? I wonder how many potential acquisition candidates there are where they can use their cash. At some point they will have to look for larger fish, which could necessitate using stock and cash. Also it wouldn't surprise me to see someone try to swallow them up. But with Frank's huge ownership he'll have to be on board.

In a couple of years they'll be quite a bit larger and in a position to move to the big board and easily pay a dividend. I suspect that the Macro of today won't look anything like the Macro of 2016. Which bodes very well for those of us who are committed and have patience.

Best,

Sam

50centdollars

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Re: MCR.V - Macro Enterprises
« Reply #6 on: December 01, 2013, 07:10:49 PM »
Thanks 50cent.

Must of been expiring options. Talk about having skin in the game.

At some point Macro is going to have to make a decision as to what to do with all of the cash they're throwing off. Especially making all cash acquisitions.

Will Macro just continue to be on the hunt for additional scale bolt on acquisitions? I wonder how many potential acquisition candidates there are where they can use their cash. At some point they will have to look for larger fish, which could necessitate using stock and cash. Also it wouldn't surprise me to see someone try to swallow them up. But with Frank's huge ownership he'll have to be on board.

In a couple of years they'll be quite a bit larger and in a position to move to the big board and easily pay a dividend. I suspect that the Macro of today won't look anything like the Macro of 2016. Which bodes very well for those of us who are committed and have patience.

Best,

Sam

They have $43 million in retained earnings. They could easily pay a dividend. I doubt they will though. I think they will probably make an acquisition. If the LNG boom takes off, MCR may become quite big. I do think its difficult to put a multiple on MCR as revenues are cyclical . Also, it is growing quickly but from what I've heard, management will not speak with analysts or the street. They just want to run their business. Thats ok with me though.
50centdollars

samiamdj

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Re: MCR.V - Macro Enterprises
« Reply #7 on: December 11, 2013, 04:42:52 PM »
Yes over the years I've had my fill of CEO's who spent their time in promotion mode with little focus on what counts; business. The results speak for themselves. I think Dick Guesella of Connacher was the defacto king of promotion. A pr machine. Did Connacher ever become a household name?

Best,

Sam

PJM

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Re: MCR.V - Macro Enterprises
« Reply #8 on: March 05, 2014, 05:30:27 PM »
MCR ranked as TSX Venture top 50 companies among 2100 companies

http://online.wsj.com/article/PR-CO-20140212-911126.html

PJM

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Re: MCR.V - Macro Enterprises
« Reply #9 on: March 13, 2014, 12:58:08 AM »
Good set of results for 2013 and positive outlook for the next quarter. Still trading less than 7 P/E on a fully diluted basis.

http://www.macroenterprises.ca/documents/press_releases/2014/MCR-2014-03-12.pdf